Final answer:
The strategy that allows you to minimize downside risk with the cost of the put option is a protective put, which involves buying a put to ensure the right to sell the owned asset at a set price.
Step-by-step explanation:
The strategy that allows an investor to minimize downside risk with the cost of a put option is the protective put. A protective put involves purchasing a put option for an asset that you already own. This strategy acts as insurance, as it gives the investor the right, but not the obligation, to sell the underlying asset at a specified price, known as the strike price, within a specified period. Should the asset's market price fall below the strike price, the investor can exercise the put option, thereby limiting their losses. The cost of purchasing the put option is the cost of this protection.
Other strategies mentioned, such as the covered call, straddle, spread, and collar, involve different risk and payoff structures that do not focus on minimizing risk through a protective put option. A covered call, for instance, involves selling a call option for an asset you own to generate income, which provides a limited downside protection to the extent of the premium received but does not provide the level of protection against a significant drop in value like a protective put does.